With about $6 trillion of assets under management, BlackRock Inc. carries a lot of weight in the business world. And Laurence Fink, CEO and chairman of the New York-based investment firm, wants everyone to know that. In a letter dated January 12, Fink urged dozens of CEOs of publicly-traded companies to expand their horizons beyond the confines of profit. “Society is demanding that companies, both public and private, serve a social purpose,” he wrote. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Though such words sound reasonable, they epitomize a common error about the institutional role of the corporation.
For decades, corporations, prodded by government, nonprofit activists and their own shareholders, have been retooling themselves as social problem solvers. Under the doctrine of Corporate Social Responsibility (CSR), companies are behaving as policy-oriented philanthropies. A company, in this view, is answerable not just to persons formally connected to the company, but to the larger society – “stakeholders” – potentially affected by company decisions. Doing business is about promoting the general welfare, not just creating value. Profit and altruism go hand in hand.
Now there is nothing inherently contradictory with making a profit and improving the human condition. “Doing good by doing well” is an admirable credo. Intentionally or not, improving the human condition in some way is the whole point of business. The problem is that the pressures for “doing good” usually come from outside reformers who often use coercion, whether overt or subtle, to get their way. Corporate officials may respond favorably to such appeals, but that doesn’t mean they are doing right by the company. Business executives, keep in mind, are self-interested. They want to keep their companies profitable, but they also want to keep their jobs. If they sense that the demands of groups purporting to represent stakeholders are manageable, they likely will take the easy way out and succumb. That’s why, for example, AT&T, Colgate-Palmolive, FedEx, Home Depot, McDonald’s, PepsiCo and Verizon have been prolific donors to civil rights hustlers such as Al Sharpton and Jesse Jackson. No businessman wants to be tagged as a “racist.”
This tendency becomes especially problematic when businessmen themselves – like Larry Fink – take the lead in transforming corporations into social welfare agencies. Fink, who in 1988 co-founded BlackRock, now the world’s largest investment firm, wants CEOs and other business executives to solve complex policy problems on a global scale. Profit and doing good, he believes, are natural partners. In his letter, he wrote: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate. Without a sense of purpose, no company, either public or private, can achieve its full potential.” A lot of companies already are on board. Some have redefined their legal responsibilities to shareholders. Others have instituted “impact investments,” an idea in which generating measurable social benefits and profits constitute a dual mission.
Businessmen should understand this much: A “social cause” is an abstraction. It takes on life only insofar as its leaders are willing and able to dramatize the need for public support. The latter group of persons are adept in the art of persuasion. They make speeches, give testimony, make media appearances, negotiate agreements, write editorials and raise funds. They make their pitch to a broad spectrum of opinion about how America and the rest of the world ought to be run. Their rhetoric is altruistic. Yet, like businessmen, they act out of self-interest. And their primary goal is the transformation of the nature of the corporation. Some companies will see business propositions in this and some won’t. Either way, that’s a call for the company alone, not its critics, to make.
Business enterprises increasingly are setting their agendas in accordance with what economist David Henderson calls the “global salvationist consensus.” This consensus leans leftward – that is, in a direction innately suspicious of the profit motive. Larry Fink, apparently attracted to this way of thinking, seems unaware of the extent to which the drive for profit and the drive for social reform are in conflict. He may have good intentions, but he fails to realize the practical limitations to cooperation. The primary obligation of business executives, at BlackRock or anywhere else, remains to their companies, not “the world.”
Postscript: BlackRock Inc., regrettably, is following through on its goal of salvation through diversity. On Friday, February 2, the Wall Street Journal reported that management has posted a new set of proxy guidelines for female representation on the boards of companies in the BlackRock portfolio. “We would normally expect to see at least two women directors on every board,” reads the website. Michelle Edkins, head of BlackRock’s global investment stewardship project, sent out a letter to 300 companies listed on the Russell 1000 with fewer than two women on their boards that read: “We believe that a lack of diversity on the board undermines its ability to make effective strategic decisions. That, in turn, inhibits the company’s capacity for long-term growth.” Somehow the lack of such “diversity” had not inhibited their long-term growth until now. Laurence Fink no doubt has even more ambitious ideas in mind for the future.